On Friday, the CFPB issued its much anticipated proposal to amend the KBYO/TRID rule. The CFPB crowded dozens of proposed changes into the almost 300 page proposal, most of which are highly technical and require careful examination. As the Bureau has signaled since its intention to issue amendments was first announced, the proposal is not intended “to revisit major policy decisions” because “[t]he Bureau is reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after the October 2015 effective date or to otherwise distract from industry’s intense and very productive efforts to resolve outstanding implementation issues.” However, it has “proposed a handful of substantive changes where it has identified a potential discrete solution to a specific implementation challenge.”
If finalized, the amendments should resolve a number of significant ambiguities that have generated concerns about the liability of lenders and purchasers of mortgage loans and hampered loan sales, particularly the so-called “Black Hole” that can arise when closing is unexpectedly delayed. However, because it is unclear in most cases whether the Bureau intends the amendments to apply only prospectively and because the amendments would not alter the provisions for “curing” errors, these liability concerns will remain for loans originated prior to the effective date of the amendments. Furthermore, because the industry has been forced to make loans since October 2015 despite these ambiguities, it will be necessary in many cases to revise existing systems and practices to comply with the amended rule. Finally, in some cases, the Bureau seems to have gone beyond resolving ambiguities and is instead seeking to make targeted policy changes to the rule.
Although the proposed amendments are too voluminous and technical to be summarized comprehensively, we have highlighted a number of the more significant proposed changes below. Note that the CFPB specifically requested feedback on a number of the issues addressed in the proposal. Comments are due on or before October 18, 2016.
NO CHANGES TO “CURES” FOR ERRORS
In a clear rejection of industry requests, the Bureau states that it is “not proposing additional cure provisions.” The Bureau explains that:
The Bureau has spent substantial time considering industry requests to define further procedures for curing errors made in Loan Estimates or Closing Disclosures. The Bureau has worked steadily with industry to explain the cure provisions adopted in the TILA-RESPA Final Rule as well as TILA’s existing provisions for cure. The Bureau is concerned that further definition of cure provisions would not be practicable without substantially undermining incentives for compliance with the rule. The Bureau believes that further defining cure provisions would be extraordinarily complex. Accordingly, the Bureau is focusing this rulemaking process on facilitating compliance with the TILA-RESPA Rule in an expeditious manner so that all consumers receive disclosures that conform to the requirements of the rule.
The proposal also seeks to change the applicable tolerances when the WLP is not provided. Specifically, the proposed rule would narrow from 10% to zero the applicable tolerance limitation when the creditor permits the consumer to shop for a service but fails to provide a WLP. Currently, comment 19(e)(3)(iii)-2 states that the 10% tolerance applies in such circumstances. However, the Bureau is proposing to apply the zero tolerance instead because “[t]he Bureau believes that a creditor did not permit a consumer to shop if the creditor failed to provide a written list of providers.” Although the Bureau states that this is a clarification, it appears to be a substantive shift in policy that should apply only prospectively.
The proposal includes a number of other changes that address a variety of topics that the Bureau describes as minor changes and technical corrections, including:
Questions regarding the matters discussed may be directed to any of our lawyers listed in this alert, or to any other Orrick attorney with whom you have consulted in the past.